SIBOS19: banking on a history of adaptation

That history will be on show later in September when I, along with a host of my banking industry colleagues from all around the globe, will attend Sibos - one of the biggest financial services conferences in the world. 

" Banks, like they have done throughout history, are changing in line with customer needs and market expectations.”

There we can expect to hear huge amounts of talk about fintech and the impact it will have on the future of banking.

In previous years, the discussion at Sibos has sometimes centred on the ‘inevitable’ demise of banks – but I expect to hear much less of that this year. The reason, of course, is reports of our death have been greatly exaggerated.

Not fade away

For years we heard how fintech was pushing banks to the precipice. It’s now clear something different is happening. Banks, like they have done throughout history, are instead changing in line with customer needs and market expectations.

Consortia including banks are launching technology to remake processes which are hundreds of years old. Proof of concepts are now becoming commercialised and rolled out at scale. All over the world banks are embracing machine learning and artificial intelligence.

This is not the end of banking. Banks are simply morphing to embrace the new opportunities presented by technology – including ones nobody saw coming.

So will banks even be recognisable in the future? I think they will. At the end of the day banks are still going to be regulated entities. Whether they call us ‘banks’ or something else, we are still going to be the lynchpin in providing financial stability for governments, in turn supporting social and economic stability.

And if we are not called ‘banks’, we’ll still be helping customers - whether they be companies, super funds, other banks or individuals – manage surplus deposits while helping secure and grow those funds. And we’ll still be helping those with a shortage of capital to support their business or personal needs.

It’s a cycle that is not new. Banks have been around for hundreds of years and have always adapted. This contrasts with the general perception of banks as big organisations that are slow to adapt.

Banking is an industry that has adapted incredibly well over time. There are plenty of large consumer brands which disappeared into the aether because they failed to adapt – either due to changing customer expectations or new competition displacing their core value propositions.

But banking has continued to evolve with the underlying needs of society and has been able enhance its core value by either collaborating with or learning from competition.

The role banks play has and will always change in response to community demands. But that core role of safety and trust is an unmoveable part of that role – and I can’t see that changing in my lifetime.

Time share

What will change are the other players in the space. By no means do banks have our head in the sand - at Sibos in 2018, ANZ CEO Shayne Elliott talked very clearly about the path banks are taking. The reality is banks can't do everything in their own right and the pace of change means developments are happening faster than ever before.

There will be innovative solutions society wants that banks can’t or won’t provide. That’s where fintech will play a vital role – with the help, of course, of banks.

A huge opportunity for both banks and fintech exists in traditional incumbents assisting startups and disruptors to navigate the complex regulated banking environment at scale to reach the end customer.

For banks, being negative about disruptors and saying ‘it's not going to happen’ or ‘we can beat them’ is the wrong way to think. Every one of these disruptors is an opportunity. The mindset needs to be partnerships over proprietary thinking, leveraging those partnerships to drive better outcomes for all stakeholders.

These partnerships are also critical for the success of fintechs. There’s a definite social preparedness to accept new names in the financial sector without having an understanding of the scale involved or the risks being undertaken.

Banks could benefit tremendously by helping improve the financial literacy of the broader population. Consumers need to be wary of unregulated players since they are effectively lending money as an unsecured creditor.

I think there's a real opportunity for banks to play more of a role educating the public.

This kind of partnership is critical to the future of traditional incumbents. But banks that have a closed-minded, parochial mindset are going to struggle to keep pace with the expectations of the market.

Changing role

The fundamental role of a bank as a trusted counterparty responsible for helping maintain a stable financial system - and therefore social and economic stability - isn't changing.

It is clear traditional banks are no longer the lone major player in the financial services space. But that does not herald the end of banking.

People forget there's a long game and immediate obsessions with small, agile startups with a great idea and bit of market share are very different to large, regulated entities that evolve.

Not everyone will make it and some bank names will disappear along the way. But can you picture a time when a government declares all bets off, deregulates the banking industry and lets anybody in? It’s just not going to happen.

The empirical evidence says over the course of centuries the banking sector has proven itself to be resilient and adaptable to changing processes.

Like I said, we’ve spent a hundred years proving that - and I think we can continue to do so for a hundred more.

Mark Evans is MD Transaction Banking, Institutional

This story is an edited version of comments given to Sibos Issues earlier in 2019 and republished on ANZ’s Institutional website.